Emerging-market assets rallied after Federal Reserve chair Jerome Powell said on Wednesday that higher inflation forecasts wouldn’t derail plans for interest rate cuts this year, providing a boon to risky sentiment.
“The developed market adjustment is lagging and it’s not all blue skies, but its rather good while carry is in vogue and many emerging markets have carry to offer,” he added. “If you zoom in, even with some unsteadiness, carry currencies and Latin America is still doing particularly well,” said Alejandro Cuadrado, chief FX strategist at BBVA in New York.
The Fed meeting came after the Bank of Japan on Tuesday eliminated the world’s last negative interest rate regime, while maintaining accommodative financial conditions. ADVERTISEMENT CONTINUE READING BELOW The dovish stance weakened the yen, a source of one of the most popular carry trades where investors borrow to invest in EM bonds.